AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (2) TMI 372
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....pany is engaged in the business of manufacturing of plastic moulded products, household brushes, toothbrushes, kitchen scrubbers etc. in the name of Coronet Products Pvt. Ltd. However, the appeal has been filed by Jewel Consumer Care Pvt. Ltd. for and on behalf of Coronet Products Pvt. Ltd. Return of income for Asst. Year 2004-05 was filed on 30.10.2004 declaring total loss of Rs. 1,44,22,082/-. The case was selected for scrutiny assessment and notice u/s 143(2) was issued on 1.8.2005. Assessment was completed by making an addition of Rs. 18,89,228/- and loss was assessed at Rs. 125,46,262/- whereas book profit which was computed by assessee in the income-tax return at Rs. 25,84,151/- was assessed at NIL by Assessing Officer. 3. Aggrieved, assessee went in appeal before CIT(A) and got part relief and thereafter assessee has not preferred any further appeal whereas Revenue is in appeal before the Tribunal. 4. First we take up ground no.1 (revised ground) which reads as under :- 1) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in restricting the addition of royalty charges to 50% of deduction claimed at Rs. 3,09,912/- as revenue expenditure wi....
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....enue expenditure. 8. We have heard the rival contentions and perused the material on record. The issue to be examined is that whether royalty payment calculated by applying certain percentage on sales of the assesseecompany, which is payable to a foreign company under a technology transfer agreement is in the nature of capital expenditure or revenue expenditure. In the instant case there is payment of Rs. 17,10,428/- made by assessee company to a foreign company on account of royalty and this amount has been added back by the assessee to its total income on account of non-deduction of TDS on the royalty payment in accordance with the provisions of section 40(a)(i) and during the year under appeal assessee has claimed deduction of royalty of Rs. 3,09,912/- in its computation of income for the royalty which pertained to Asst. Year 2003-04 but disallowed in Asst. Year 2003-04 as TDS was not deducted and finally deducted and deposited in Asst. Year 2004-05. For this reason Revenue has revised its ground of appeal by replacing Rs. 17,10,428/- by Rs. 3,09,912/-. 9. Going through the facts of the case we find that the royalty was paid on the basis of sales generated by the assessee and ....
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....DR submitted that assessee has incurred expenditure on account of cost of replacing stamping dies logo for Rs. 27,041/- and purchase of AC to DC Convertors for Rs. 13,914/- which the assessee has claimed as revenue expenditure under the head rpair expenditure but the Assessing Officer was of the view of treating this expenditure of Rs. 35,386/- capital expenditure. 15. On the other hand, ld. AR submitted that the above said expenditure was incurred for replacing of spares and was in the nature of consumable spares which are normally accounted under the head of repair of expenses as revenue expenditure. 16. We have heard the rival contentions and perused the material on record and have gone through the findings of ld. CIT(A) wherein he has observed as under :- "6.2 I have considered the submission of the ld. AR and the facts of the case. Out of the plethora of case laws on the issue of categorization of a particular expense as capital or revenue, some important principles have been culled out. As expenditure which (a) provides benefit for less than one year, (b) involves mere replacement of a part of the machine and not the entire machine, or (c) does not result in the creation ....
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.... The ratio of the above case is squarely applicable to the present case. Both, provision for leave encashment and gratuity have been made by the assessee on actual accrued liability calculated on a scientific basis and the same cannot be termed as unascertained liability. Hence, the addition of Rs. 3,60,809/- to the Book Profit for the purpose of 115JB is directed to be deleted." 22. We find that Hon'ble Apex Court in the case of Bharat Earthmovers vs. CIT (supra) while reversing the decision of Hon'ble High Court has held - that the provisions made by the assessee for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by the employees of the company inclusive of officers and staff subject to the ceiling accumulation as applicable on the relevant date was entitled to deduction out of the gross receipts of the accounting year during which the provision is made for the liability. The liability was not a contingent liability. 23. As the facts of the case of assessee are identical to the facts discussed by Hon'ble Supreme Court in the case of Bharat Earthmovers vs. CIT (supra) and also assessee has prepared its....
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....same as penalties which are not allowable as an expenditure u/s 37. The ld. CIT(A) while deleting the addition made by Assessing Officer has observed :- "10.3 I have considered the submissions of the ld. AR and the facts of the case. On perusal of the details filed, I find that item no.)a_ is a reversal of cenvat credit claimed by the assessee company. At the time of claiming of cenvat credit, the same was reduced by the company from its purchase cost and hence at the state of reversal, the same will be considered as cost. Further, items No.(b) and (c) are actual payments made during the year. A perusal of the challan for the said payments clearly reveals that they are not penal in nature. In view of the above facts, I hold that the said amount of Rs. 78,487/- is not penal in nature. The disallowance of Rs. 78,487/- is therefore directed to be deleted." 27. As the three types of expenses referred in this ground are of general nature expenditure because Rs. 57,015/- is a reversal of cenvat credit which was previously reduced on the purchase cost and for some reason the claim of this cenvat credit was not allowed by the Excise Department and therefore, assessee has debited that di....
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.... that the amount claimed as depreciation @ 25% on electric installation was not correct because he expenditure was for electrical fittings and, therefore, eligible for depreciation @ 15% and, therefore, the excess depreciation claimed by the assessee at Rs. 2,25,463/- was rightly disallowed by the Assessing Officer and ld. CIT(A) was not justified in deleting the same and therefore order of ld. CIT(A) to be set aside and that of Assessing Officer be restored on this issue. 34. On the other hand, ld. AR submitted that the expenditure in question was incurred for electric installation to support control panel, power control centers etc. which are covered under the head plant & machinery and are eligible for depreciation @ 25% and electrical fittings as referred by Assessing Officer are in relation to furniture and fittings which includes, electrical wiring, switches, sockets, other fittings and fans etc. and, therefore, assessee has rightly claimed depreciation @ 25%. 35. We have heard the rival contentions and perused the material on record. We find that ld. CIT(A) has rightly held that the expenditure referred in this ground as expenditure on electrical equipment and machinery at....
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....in the court for its recovery and, therefore, has been treated the same as bad debts as there are least chances for any recovery of these amounts. 38. On appeal against the order of Assessing Officer, before first appellate authority, ld. CIT(A) decided the issue by observing as under :- 10.2 I have considered the submissions of the ld. AR and the facts of the case. So far as the first three items are concerned, all the conditions laid down under section 36(2) were satisfied inasmuch as the amount had already suffered taxation in the earlier year by way of reducing the expenses claimed. Hence the write off in the current year was allowable. The disallowance of Rs. 1,000/-, Rs. 550/- and Rs. 1,100/- are therefore directed to be deleted. 10.3 The disallowance of Rs. 26,224/- and Rs. 3,76,000/- stand on different footing. They do not represent any debt which has been written off but rather advances made to suppliers of goods and services, which however did not materialize in the supply of contracted goods and services. The assessee has filed suit for recovery of the same. Thus it represented business loss/trading loss which was allowable under section 37(1). Accordingly the disal....
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.... M/s CVG, Germany was the holding company of assessee-company already having equity shares worth Rs. 5.10 crores before this new investment of Rs. 82,62,000/- made during this year. The holding company's credential has already been examined by many Government Agencies including the Department of Industrial Policy & Promotion, Ministry of Commerce and Industries which has given approval to M/s CVG, Germany to invest 51% in the assessee company. The ld. AR submitted that FDI was received through the banker of assessee i.e. IDBI Bank Ltd. and due intimation was given through assessee's bank to R.B.I. for FDI receipt and thereafter form FC-GPR was filed with RBI pursuant to the allotment of shares and, therefore, this was a genuine transaction of share investment by holding company through proper banking channels as per RBI guidelines and ld. CIT(A) has rightly deleted the addition made by Assessing Officer u/s 68 of the Act. 43. We have heard the rival contentions and perused the material on record. We find from the records that there was FDI by holding company of the assessee company at Rs. 82.17 lacs for subscribing to 82,62,000 shares of assessee company of Rs. 10/- each i....
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....tance and thereafter within six months the company has to allot the equity shares and give proper information through its banker to RBI in form FCGPR. 47. Looking to the above facts of the assessee's case, we are of the view that all the conditions have been duly adhered and followed and complied with by the assessee in relation to FDI receipt towards share application money for investment in 82,62,000 equity shares of Rs. 10/- each received from the holding company for investment in the subsidiary company and the identity of the holding company stands well proved from the letter of Ministry of Commerce and Industry, Department of Industrial Policy & Promotion which has granted registration for the foreign collaboration between M/s CVG and the assessee. In these circumstances, we are of the considered view that ld. CIT(A) has rightly deleted the addition made by Assessing Officer u/s 68 and as such we find no infirmity in the order of CIT(A). We uphold the same. This ground of Revenue also fails. 48. The last ground of Revenue's appeal reads as under :- 5. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of Rs. ....